Gary Shilling’s Favorite Investment: 30 Year Treasuries

Larry Kudlow interviewed Gary Shilling last week. Shilling continues to see a double dip recession in our future with housing values declining by 20 percent. Under this scenario, Shilling forecasts the yield on long term bonds to fall from 4% to 3%. Shilling says 30 year U. S. treasury bonds are his favorite investment and he looks for 20% capital appreciation; with a more generous 30% gain for holders of zero coupon bonds.

Just like stocks. Some property values will remain perpetually inflated (Silicon Valley), the majority will either fall 10-30% or remain stagnant for years like Rod says. My big fear (and it’s admittedly anecdotal) is how these foreclosure properties are being treated by the big banks. They are in shambles by the time the house hits the auction block. Small, local banks are on the ball. Their houses are well maintained and go for a comparative premium. Unfortunately, the small banks hold only a small fraction of the excess houses.

To get that kind of appreciation in bonds the economy will have to be pretty awful. Not just in the U. S., but worldwide. We’ll just have to wait and see what happens. With stimulus winding down it will be interesting to see how this play out.

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